Saudis Drop WTI Benchmark For Trade Of US Oil - Globe & Mail

[hatrack]

Ongoing shifts in the dynamics of the global oil industry are undermining the relevance of one of its best-known price markers. Saudi Arabia's giant oil company plans to drop West Texas Intermediate, a type of light U.S. crude, as its benchmark for North American crude pricing. Saudi Aramco will switch to a new measure known as the Argus Sour Crude Index for its U.S. sales next year, abandoning WTI.

The WTI price measure has dominated North American oil trading – and conversation – for decades. It is based on oil sales in Cushing, Okla., and is one of two globally watched markers of crude. The other is Brent, which is based on sales in the North Sea. There are several important technical reasons for the move by Saudi Arabia, the world's biggest crude exporter. However, the shift also speaks to the slow, but dramatic, reshaping of the global energy landscape, as emerging countries take an increasingly prominent role in the oil trade.

The U.S. share of world crude use has fallen to less than 23 per cent in 2008 from 26 per cent in 2001. In the past year, it has fallen by another 750,000 barrels a day, or 3.7 per cent. Countries such as China and India are expected to dominate future growth in oil demand. As a result, the pricing of the U.S.-based WTI has begun to decline in importance. Although Argus is also a U.S. price, it is more closely linked with international oil and is seen as a more reliable indicator of global oil prices.

“What it really speaks to is the demand shift in oil away from the U.S. and to other places in the world. That's what's really driving the bus,” said Jeff Rubin, the former CIBC chief economist and author of Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization . “North American oil demand has peaked,” he said. “What this really says is that whereas WTI in the past had been a premium price, now WTI is going to be a discount price.”

EDIT

http://www.theglobeandmail.com/globe-investor/saudis-to-drop-wti-as-price-benchmark-for-us-crude/article1344348/

[thunder rising]

1. It's not clear if our demand dropped or others increased to make our share smaller.

Does it matter? No. You can bet the situation will be spun to increase the price at the pump.